Cogeco in good shape despite recession and troubles in Portugal

Cogeco Cable Inc. put out some solid numbers in its first quarter, demonstrating that slower growth reported at Rogers Communications Inc. earlier this month is not a sector-wide trend. "Our results for the first quarter for our cable company continue to be outstanding," president and CEO Louis Audet said during the company's first quarter financial and subscriber results conference call. "We have managed to improve our operating margin by another 1.4%, to 40%, and net income is up despite the sharp value increase in the US dollar." Analysts were anxious about Cogeco's numbers because Rogers, despite strong wireless performance, gained a modest 4,000 subscribers to its basic cable TV operations in the fourth quarter in 2008, compared with 20,000 for the same 2007 period. Digital cable grew the same as last year, with 61,000 net additions for the quarter. Meanwhile, Rogers Home Phone subscribers increased by 40,000, compared with 65,000 during the same period last year. "I would suggest that there are execution issues at Rogers, more than the economy," says Dvai Ghose, an analyst with Genuity Capital. "But for Rogers these issues are just on the cable side - on the wireless side things are very good." Peter MacDonald, an analyst with McBurney & Partners, says the difference between Rogers and Cogeco isn't that big. "I personally don't see as big divergence between Rogers' and Cogeco's numbers as do some other analysts," he tells Network Letter. "Some of the products are maturing, so it is natural that you will get slower subscriber growth this year over last." The number of net additions for Cogeco Basic Cable stood at 8,833 customers compared to 8,064 customers for the same period last year, and telephony customers grew by 18,901 to reach 238,502, compared to a growth of 23,215 for the same period last year. Given that telephony coverage has now reached 87% compared to 78% at the same time last year, revenue will have to come off of value-added and bundled services. One bright spot: net additions for Cogeco's Digital Television stood at 18,220 customers compared to 16,253 customers for the same period in 2007. MacDonald says Cogeco has at least two things going for it: the Canadian economy is not being as hard hit by the recession as are some others, and cable is recession resistant. People are less inclined to cancel their cable services, preferring to watch movies at home and maintain their high speed data connections when times are tough. One area that might be of concern to Cogeco - and that came up during the analyst call - was its exposure to Ontario and Quebec, two strong manufacturing bases hit hard by the recession. "You could say that Cogeco is more exposed to the recession because of Ontario and Quebec," says Ghose. However, the company appeared sanguine: "Our is very prone to manufacturing, to industry, but we have been doing very well despite that," said Audet on the call. Cogeco isn't without troubles though as the company is realizing in Portugal. Cogeco's Portuguese subsidiary, Cabovisao, continues to struggle in a highly competitive market. "They are losing subscribers in Portugal," Ghose tells Network Letter. "Portugal Telecom is adding subscribers with video, and ZON with voice. There are too many players in Portugal, yet there are regulatory hurdles that stop Portugal Telecom and ZON from merging." Overall, Cogeco's first-quarter revenue increased by $47.6 million, or 18.9%, over the same period last year, to reach $299.4 million, with profit of $11.1-million or 66 cents a share. Shaw Communications also reported revenue and subscribers results this week. Network Letter will have an update on those figures and how they compare to the rest of the cable industry in the coming days.

Cogeco in good shape despite recession and troubles in Portugal

Broadcast | January 15, 2009

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